Seasonality Play
Brian Trumbore
President/Editor, StocksandNews.com

It's time to update one of the more powerful principles of investing in the stock market, at least using history as our guide. Back in 1986, Yale Hirsch discovered that if you invest only during the November 1 - April 30 stretch, over time you will have far more success than investing in the corresponding period, May 1 - October 31. And it's not even close. Specifically:

$10,000 invested in the Dow Jones on May 1, 1950, and then compounded every May - October period thereafter (switching to fixed income for the other six months) would have resulted in a figure of just $9,682?or a $318 loss?by Oct. 31, 2003.

Conversely, $10,000 first invested on November 1, 1950, and then compounded each November - April (again, switching into fixed income the other six months) would have grown to $492,060?or a net gain of $482,060?by April 30, 2004.

*These returns do NOT include dividends.

[For the S&P 500 the net results were $7,102 and $349,165, respectively.]

What's interesting is that during the May - October period there has never been a 20% gain, while there have been nine, 20%+ gains November - April. You can see through the power of compounding the impact these numbers can have. On the negative side there have been ten, 10%+ losses May - October with only two such declines November - April.

So it should then be no surprise that for both the Dow and S&P five of the best six months fall in the November - April time period.

Monthly returns for the Dow Jones, Jan. 1950 - June 2004

November?. 1.6% average percentage change
December?. 1.8%
January??. 1.4%
February?... 0.2%
March??... 1.0%
April???. 1.9%

May???... 0.1%
June???.. -0.1%
July???? 1.1%
August??.. -0.1%
September?. -1.1%
October??... 0.6%

Monthly returns for the S&P 500 (same period)

November?... 1.7%
December?? 1.7%
January??? 1.5%
February??. -0.1%
March???.. 1.0%
April???? 1.3%

May????. 0.3%
June????. 0.2%
July????.. 0.9%
August???. 0.02% [fractionally positive]
September?.. -0.7%
October??? 0.9%

And for the record, monthly returns for Nasdaq (1/1/71-6/30/04)

November?? 1.9%
December?? 2.1%
January??? 3.9%
February??.. 0.6%
March???.. 0.3%
April???? 1.2%

May????. 1.0%
June????. 1.3%
July???? -0.2%
August???. 0.3%
September?.. -1.1%
October??.. 0.5%

*While I wouldn't put too much weight into the Nasdaq figures because the history is two decades shorter and some monster negative months skew the returns a bit, the numbers do graphically illustrate the old adage that when investing in tech, July - October is historically weak while November - January is strong.

Source: "Stock Treader's Almanac: 2005" Yale Hirsch & Jeffrey A. Hirsch

Brian Trumbore

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